57,000 reasons we need corporate tax reform (Updated)

John McCormack reports in the Weekly Standard:

General Electric, one of the largest corporations in America, filed a whopping 57,000-page federal tax return earlier this year but didn’t pay taxes on $14 billion in profits. The return, which was filed electronically, would have been 19 feet high if printed out and stacked.

The fact that GE paid no taxes in 2010 was widely reported earlier this year, but the size of its tax return first came to light when House budget committee chairman Paul Ryan (R, Wisc.) made the case for corporate tax reform at a recent townhall meeting. “GE was able to utilize all of these various loopholes, all of these various deductions — it’s legal,” Ryan said. Nine billion dollars of GE’s profits came overseas, outside the jurisdiction of U.S. tax law. GE wasn’t taxed on $5 billion in U.S. profits because it utilized numerous deductions and tax credits, including tax breaks for investments in low-income housing, green energy, research and development, as well as depreciation of property.

Low-income housing, green energy, R&D, depreciation of property — GE fit a little something from all parts of the political spectrum in there.

In contrast, McCormack writes that (Atlanta-based) UPS paid an effective rate of 34 percent — which was not only, well, 34 percentage points more than GE paid, but a significantly higher rate than the 24 percent effective rate its top foreign-based rival, DHL paid.

Meanwhile, the Future of Capitalism blog points out that one of GE’s tax lawyers, Ken Kies, is

the same Ken Kies who was “Chief of Staff of the Congressional Joint Committee on Taxation from January 1995 until January 1998″ and who “From 1982 until 1987 … served as Chief Republican Tax Counsel to the Ways and Means Committee of the United States House of Representatives.” The revolving door turns again.

The unequal treatment of companies; the reduction of U.S. firms’ competitiveness with foreign-based companies; the astounding amount of human capital devoted to exploiting tax loopholes; the high likelihood that corporate resources are being allocated less than optimally because tax breaks artificially make certain activities more lucrative than they ought to be; the dampening of federal revenues; the inherent conflict of interest for politicians and bureaucrats who know that keeping the tax code complex will improve their future job prospects …

… do we need any more reasons to do corporate tax reform?

UPDATE: A spokesman for GE emails to say the company paid almost $2.7 billion of income taxes world-wide in 2010 and more than $1 billion in other federal, state and local taxes, and that losses for its financial arm, GE Capital, are the reason its tax rate was so low last year. He adds:

We believe that the U.S. tax system needs to be reformed and all loopholes should be closed. Furthermore, Congress needs to lower the corporate rate and provide the US a territorial system like every other major country in the world.

– By Kyle Wingfield

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137 comments Add your comment

getalife

November 18th, 2011
11:45 am

‘Anti-Establishment’ Tea Party Reps Rake In Millions From GOP Special Interest Groups” Aol.

Even your tea party is corrupt.

Join the OWS real Americans fighting to get their country back.

Bruno

November 18th, 2011
11:56 am

Join the OWS real Americans fighting to get their country back.

Good call, getalife. I can think of no better way to flush millions and millions of precious tax dollars down the drain with no hope for tangible results.

sean Smith

November 18th, 2011
12:05 pm

We need an 15% alternative minimum tax on corporations so they pay something. And yes we need full blown tax reform, but that will take years with the bunch on both sides of the aisle we have in Washington now.

AngryRedMarsWoman

November 18th, 2011
12:20 pm

There is a corporate AMT in the US and it is 20%, but only about 2% of companies wind up paying it. See taxpolicycenterDOTorgSLASHtaxtopicsSLASHencyclopediaSLASHAlternative-Minimum-Tax-corporateDOTcfm “***the AMT has a broader definition of income and a less generous set of deductions. Further, most business tax credits, such as the credit for research and experimentation, cannot be used to reduce tax payments under the AMT. Given the larger measure of taxable net income under the AMT, practically all corporations would pay AMT were it not for the fact that the tax rate under the AMT is lower than the maximum tax rate under the regular tax system. The tax rate under the AMT is 20 percent, while the top tax rate under the regular tax system is 35 percent. Because the regular tax rate is 75 percent higher than the AMT rate, a firm’s income must be at least 75 percent greater under the AMT before it must make payments under this system. It might at first appear that such a significant percentage change in net income would require that the AMT use tremendously different measures of includable income or allowable deductions relative to the regular tax system. But for the typical manufacturing firm, gross receipts and deductions are 10 to 20 times larger than its net income. A 5 to 10 percent change in includable receipts or allowable deductions is sufficient to create an AMT liability.”

Dusty

November 18th, 2011
12:30 pm

Kyle, you’ve got enough information in there to convince a jury we need corporate tax reform NOW. Never have I read of so many “loopholes”.

I’d be angry with corporations but they are not being dishonest, just taking every advantage. I suppose that is good business and stockholders like it too. But even the “advantages” are not spread evenly.

The government, as usual, needs to get its act together on taxes or explain this mess. Soon, nobody will be paying taxes. Everybody will have a loophole. Crazy.

Skip

November 18th, 2011
12:37 pm

Tell it to the corporations, they are the ones that write the tax code.

ByteMe

November 18th, 2011
12:52 pm

GE wasn’t taxed on $5 billion in U.S. profits because it utilized numerous deductions and tax credits, including tax breaks for investments in low-income housing, green energy, research and development, as well as depreciation of property.

The biggest one — not mentioned for some odd reason, I can’t imagine why — is the deduction they get from continuing to write off/write down (and prior-year write-downs/write-offs) of all the bad loans they hold through GE Capital, which totals in the billions (remember they also got TARP, because their loan portfolio was going to sink the entire company). The other deductions are small compared to that.

And R&D is a normal expense of any company. It’s where you invest in the future of your company. Why shouldn’t that be a deduction??

Best line from their 10-K: “Annually, we file over 6,400 income tax returns in over 250 global taxing jurisdictions.” That 19,000 pages has no real comparison point other than something outside the realm of tax filings.

ByteMe

November 18th, 2011
12:56 pm

Oops, not 19,000… 57,000.

ragnar danneskjold

November 18th, 2011
1:29 pm

Good list, to which I would add “likelihood that the incidence of taxation is 90%+ shifted by corporations onto their customers and employees.”

hatorade drinkers

November 18th, 2011
1:31 pm

but if there is a bill introduced in the house of representatives today which seeks to tackle the problem, will it get any traction or will it get tossed in the committee stage? what do you think will happen?

Bob

November 18th, 2011
1:42 pm

getalife, these ows protestors you speak of, are they the same ones screaming at children today in NYC ?
The group that has not offered anything other than “from those according to their ability, to those according to their needs” ? You know, the goobers with nose rings that wear their little knit caps and scarfs when it is 90 degrees outside.

sailfish

November 18th, 2011
1:50 pm

Yes, good points kyle. All should pay some and some should pay all…

yuzeyurbrane

November 18th, 2011
1:52 pm

So? What is your idea of “reform”? Let them all get off tax free? Reverse Robinhood or what? As to specific example, I’ll bet there is logical answer starting with GE obviously has better accountants than UPS.

sailfish

November 18th, 2011
1:59 pm

Those protestors are exercising their first amendment rights, good american citizens just trying to bring attention to the staggering wealth inequality here in present day america. They have a very good issue to keep in the limelight.

Taxguy

November 18th, 2011
2:03 pm

When corporate tax increases, guess what the consumers end up paying more

spaceman109

November 18th, 2011
2:09 pm

kyle…..yes, it is long past time for reducing the complexity of the present tax system. if, however, the tax system was simplified, say, next year, what would prevent congress from mucking up the whole thing again in future with cool new loopholes and nifty tax breaks? correct me if i am wrong, but i believe the current tax structure began in 1986 when president reagan signed that simplification. soooo….after 1,487,569 changes to that structure comes more screaming about simplifying things again. the only reason that anyone should support structural tax reform would be if it came with a proviso that loopholes and tax breaks would require a two-thirds vote of both houses to make it into the new structure. oops….i forgot…..those two can hardly get anything done now!!

Voice of Reason

November 18th, 2011
2:19 pm

Liberals never seem to understand that no business pay taxes. Ever. No matter what the rate. It always, 100% of the time comes back on the consumer.

@ getalife
I’ve got better things to do than camp out in nasty park, protest capitalism (the only reason your standard of living is as high as it is now), and poop on police cars. But you go ahead and just have a ball.

Charles

November 18th, 2011
2:20 pm

yuzeyurbrane

So? What is your idea of “reform”? Let them all get off tax free? Reverse Robinhood or what? As to specific example, I’ll bet there is logical answer starting with GE obviously has better accountants than UPS.

++++++

And they both have better accountants than the average person. So should you and I pay taxes and these corporations get away with paying none at all? According to Mitt, corporations are people too. With that rationale, they definitely should be paying something.

dixiedemons

November 18th, 2011
2:30 pm

Great article Kyle……..but …

Every man, woman and child for himself and Congress for the 1%

“Republicans and Democrats don’t just have different priorities; they live in different intellectual and moral universes.”

Paul Krugman
Nobel Laureate

Mike

November 18th, 2011
2:32 pm

So what is the problem? I thought all you conservatives were for no taxes and no tax reform when it comes to the businesses. I thought the whole point was to help the job creators. I inderstood with no taxes these companies could hire more Americans and the economy would rebound. I don’t see any problems.

Evelyn

November 18th, 2011
2:34 pm

spaceman109

November 18th, 2011
2:48 pm

mike @ 2:32:

if corporate taxes were reduced through structural tax reform, i believe that, based on recent history, the corporations would use that extra money for more stock buybacks and ever-higher executive compensation. look, businesses do not hire primarily because of lower taxes or fewer regulations. they hire because their is more demand for their product or service. since average household wages are heavily unlikely to go up any time soon, perhaps you would be so kind to explain how no corporate taxes, by itself, would lead to more hiring and an economic rebound.

spaceman109

November 18th, 2011
2:49 pm

oops….i meant “there is more demand”.

my bad! :D

UGA 1999

November 18th, 2011
3:06 pm

Voice….great post.

Voice of Reason

November 18th, 2011
3:09 pm

I invested my own and some partners’ money to create a manufacturing business that employs dozens of people and sells products all over the world.

I have a real problem with the huge corporations that lobby Congress and the White House for special tax breaks and subsidies. What I do is capitalism. What GE, ADM, Goldman Sachs, and Boeing do is not capitalism. While they produce useful things, they make as much money from politics as from creating goods and services.

Karl Marx

November 18th, 2011
3:17 pm

The best argument I’ve heard for the Fair Tax so far. Pass the Fair Tax then no more loop holes and no need to lobby for anything.

Bart Abel

November 18th, 2011
3:23 pm

Kyle made a great argument above for corporate tax reform. The question is what kind of reform?

Although the U.S. marginal corporate tax rate is among the highest in the industrialized world…because of loopholes, credits, and obsolete subsidies, the average percentage of taxes actually paid relative to profits, known as the effective corporate tax rate, is among the lowest in the industrialized world. When effective tax rates are relatively low for U.S. corporations, then of course, tax rates on families must be higher.

As a result, I’d support lowering the marginal corporate tax rate if obsolete loopholes/subsidies/credits/deductions could be eliminated (such as those that benefit oil, coal, gas, big agriculture, big pharma), legitimate expenses could be identified. In addition, the result of any such reform must be that effective corporate tax rates do not fall, remain adequate to our needs, remain competitive, are relatively evenly spread across the corporate sector, are fair to households, and adequately reflects the services and benefits of incorporation, including but not limited to protection from liability for owners and managers.

Bill

November 18th, 2011
3:25 pm

OK,
Corporations have been screaming that the tax rate hurts their competitiveness. Although our corporate tax rate is high compared to other developed nations, that is not what they pay.

But, for the sake of argument, lets simplify and greatly reduce the corporate tax code. What do we get in return, or how do we offset that loss? I would be willing to trade it for a tax that will HELP their competitiveness. How about a tax on all stock transactions. The amount of the tax would decline the longer you held the stock. The result would be a tax on speculators, but little or no on investors who are in it for the long haul. The other result would be that corporations would have less short term pressure from investors and less focus on stock price. CEOs would be more free to act in the long term best interest of their companies, instead of trying to prop up stock prices.

JDW

November 18th, 2011
3:26 pm

Our tax codes have two problems,

A) They are way too complicated as Kyle points out. Main reason for this is all the gyrations our politicians go through to spend money without appearing to spend money. This leads to all those tax breaks and loopholes that cause the complexity not to mention $14 trillion in debt.

B) What you pay is dependent on how much you spend. For those that doubt. Last year GE spent $21 million lobbying the Congress and over ten years have spent a whopping $211 million. UPS on the other hand spent $3.6 million last year and $37.5 million over the last 10 years. You get what you pay for.

JDW

November 18th, 2011
3:27 pm

getalife

November 18th, 2011
3:28 pm

“GOP Push For Balanced Budget Amendment Fails” Aol.

Oops.

jman

November 18th, 2011
3:34 pm

Now you all can understand why Herman Cain is under such intense scrutiny. No one from either party wants a fair tax like 9-9-9. That would eliminate the opportunity for politicians to get lobbying money thrown their way.

joe

November 18th, 2011
3:38 pm

David

November 18th, 2011
3:40 pm

A few facts that should be as plain as the nose on my face. 1) The tax code is completely broken and needs to be changed via simplification. 2) Corporations do not pay taxes, consumers do (taxes are passed onto the customer) 3) You still need to have some type of tax on Corporations but in a way that gets them to do more buisness in the US.
Those are the facts, you can argue if you like but then you would be an idiot. Where the choices are to be made is in how to change them. For me outside of adpotion of the FairTax I would set the corporate tax rate at something low (say in the 5% to 10% range) and have no deductions, it is simple, measureable, and easy to understand. That is however up for debate.

JDW

November 18th, 2011
3:45 pm

@Bill, you have hit on one of the great secrets of Wall Street. After a company’s IPO the financial trading process adds absolutely zero economic value other than to enrich the few that are “in the know”. The tax preferred status of short term speculations (i.e. gambling) does absolutely nothing but increase volatility. As a data point program or computer based speculative trading accounts for more than 75% of trading volume in an average day.

You are right on and I think the following tax scale would do wonders for the stability of our markets and the earnings of the true investors.

Gains on instruments held under one year taxed at 85%
Gains on instruments held under two years taxed at 50%
Gains on instruments held under three years taxed at 35%
Gains on instruments held under four years taxed at 15%
Gains on instruments held five years and over are tax free.

jconservative

November 18th, 2011
3:45 pm

Kyle this leads us back to those unresolved questions: How much should they pay? What is their “fair share”? Is there such a thing as a “fair share”.

Who will write the new corporate tax code? The corporations through their lobbying?
Who will define “fair share”? The corporations through their lobbying?

And what about Grover? If a new plan causes GE to pay 1% that is a “Tax Increase”. And pledges have been signed promising no tax increases. Grover must be reckoned with.

There is a lot to be debated before we get around to actually writing a new tax code.

spaceman109

November 18th, 2011
3:46 pm

david @ 3:40

what??? no corporate deductions??? are you some sort of communist???? :D

i love the idea of a flat tax for corporations, but in the present environment where corporations desperately cling to their tax breaks, i don’t believe that would happen.

Bart Abel

November 18th, 2011
3:48 pm

When corporate tax increases, guess what the consumers end up paying more

Those who repeat this assertion, Neil Boortz listeners mostly, are arguing that if corporate income taxes go up, then business will just pass the cost onto consumers. This crazy assertion is easily dismissed and is a perfect demonstration of why relying on talk radio for your information and analysis is folly.

If a business were to raise prices to cover higher corporate tax rates, then it would simultaneously be reducing demand for its products and services, thereby reducing its profits. No company will risk lowering their profits because the tax rate on those profits went up. Prices are based on supply and demand, not income tax rates. (Admittedly, corporate tax rates can impact supply, but not in a vacuum. Numerous other factors are pushing an pulling on the supply and demand curves, all at the same time).

For those who would counter that raising prices may not decrease demand for some product and services and therefore would not decrease profits profits, note that if business could raise its prices without lowering profits, then it would already have done so.

Yes, contrary to what Master Boortz teaches his devoted listeners, corporation do pay taxes, as well they should. They’re legal entities formed under government charters and enjoy government protections and benefits. If the founders of corporations don’t want to pay corporate taxes, if they don’t want to enjoy the government provided benefits of incorporation, then they don’t have to incorporate. Instead, they can simply operate as proprietorships and partnerships.

Hillbilly D

November 18th, 2011
4:02 pm

Doing away with the deductions, credits, subsidies and loopholes might be a good thing for most everybody. Well, some lawyers, accountants and politicians probably wouldn’t like it.

They’re legal entities formed under government charters and enjoy government protections and benefits.

In the early days of corporations, in this country, they were formed to perform a specific purpose (think build the Erie Canal, etc.) and limited to a certain time frame. The perpetual corporation didn’t come along together and the concept of corporate personhood didn’t really take hole until the second half of the 19th century. As for me, if a corporation has the same rights and privileges as an individual, why don’t aren’t they subject to the same liabilities. Most everybody I’ve ever known personally, who formed a corporation, did it to lessen their chances of being sued, successfully.

UGA 92

November 18th, 2011
4:06 pm

Corporations don’t pay taxes, they collect them. All corporate taxes are built into the price they charge for their goods and services. Another great reason to switch to the Fair Tax.

carlosgvv

November 18th, 2011
4:11 pm

When you are a large, powerful company like GE, you can buy the politicians and have the tax codes written so you don’t have to pay any taxes. Money talks.

Bart Abel

November 18th, 2011
4:12 pm

Bart Abel

November 18th, 2011
4:13 pm

Carlos, you blocked my sigh. I was reflecting on the comment above yours.

Michael H. Smith

November 18th, 2011
4:34 pm

I like smirking socialist libs that think corporations pay taxes. Consumers are the source of corporate profits. Now who pays the tax burden of a corporation? We their customers. DUH! :roll:

MarkV

November 18th, 2011
4:35 pm

I was sure that an article on corporate taxes would evoke the inanity, “Corporations don’t pay taxes, they collect them.” I was not disappointed.

GDRLA

November 18th, 2011
4:43 pm

Tax reform will never work even if it happens simply because CONGRESS is who passes the tax laws – everyone blames the IRS but they are simply carrying out the laws that Congress passes – Congress does not have the courage & willpower to balance the budget, curb excess spending, & stop catering to every special interest group on the planet – so why would we expect them to adequately reform taxes? They have too much power & privilege in playing with it each & every session & year!

Lil' Barry Bailout (Revised Downward)

November 18th, 2011
4:44 pm

JDW: The tax preferred status of short term speculations
————————-

No such thing. Short term gains are taxed at a higher rate than long term gains.

Lil' Barry Bailout (Revised Downward)

November 18th, 2011
4:45 pm

Anybody seen my buddy David Green, or any of his sockpuppets? Just wanted to let him know I’m here for him. Heh heh.

Michael H. Smith

November 18th, 2011
4:47 pm

I’m sure the stupidity of the marxists will always arise when corporate taxes are brought up. Always the same inane insane rhetoric is asserted. While the same consumer to corporation money trail exists which corporations use to pay for all corporate costs and liabilities – including taxes!

JDW

November 18th, 2011
4:47 pm

@LBB…”No such thing. Short term gains are taxed at a higher rate than long term gains.”

Now see that just shows how closely you pay attention. Your President Duhbya did away with that little feature in 2003.